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Feds to Bail Out Fannie and Freddie

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The links to that news are everywhere. I’ll link to the Financial Times. Also, analysis from Matt Yglesias and Market Movers.

What a piece of work is a man, how noble in reason, how
infinite in faculties, in form and moving how express and
admirable, in action how like an angel, in apprehension how like
a god! – Hamlet, Act 2, Scene 2

Shakespeare provides an incredibly deep and accurate summation of the varying faces of man in my favorite of his tradgedies. After recent outcry following Bear Sterns move regarding moral hazard from talking heads, pundits and the such (me too!), the Feds have provided a great example of one of humanity’s many downfalls–our shortsightedness.

The “moral hazard” topic will start to appear even more cliche starting tomorrow morning, which is something that did not need to happen. People need to know that it is a real risk–not be suffering from message fatigue in its regard. Also, the markets will be off heavily pending that oil doesn’t tank overnight.

Where do we go from here? Let’s say that this was not unexpected. Not just last week, but with the constant–nare I sound like a liberal and call it criminal or treasonous–failings of our top leadership in government. In this case, specifically a number of Senators and Congressmen who have opened the door for this situation’s moral hazard. The Washington Post has a few particularly damning accounts of Senator Chuck Schumer, Congressman William Clay Jr. and others.

These folks, acting with political shortsightedness, corruption, or whatever, helped build these companies into their present states. Our capitalist system is supposed to work best with limited, active regulation. Nothing like right now with the rubbery-spined Congress we’ve been so willing to elect/accept.

UPDATE, July 14 @ 4:00p:

Via Digg, the Provocateur has an interesting take on the whole Fannie/Freddie/Moral Hazard mess:

By turning these two giants into the only game in town when it comes to mortgage securitization for loans for good borrowers, and making them an extension of the government, they created their own terrible moral hazard. These companies can’t fail, and thus, they take extra risks knowing this.

This bailout is no surprise, but furthermore, it is the equivalent of giving a crackhead more crack. These two engaged in terribly risky behavior. It was behavior they never would have engaged in if they didn’t know they would be bailed out if that behavior didn’t work out.

Certainly read the whole thing.

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Written by walonline

July 13, 2008 at 11:04 pm

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